Question

Perez Industries, a publicly held corporation, consists of several companies, each of which provides an array of products and services to unaffiliated customers. In your opinion, each of these companies qualifies as a separate operating segment. The corporation is in the process of completing its first-year financial statements. Al- though the directors of Perez Industries wish to comply with the provisions of SFAS No. 131 [ASC 280], they believe that disclosing each individual segment would result in an unwieldy and cumbersome set of financial statements. For this reason, they request that when you prepare these statements, you keep the identified segments to the minimum number that would ensure compliance with SFAS No. 131 [ASC 280].

Required:A. To what extent does the management of Perez Industries have a choice in deciding whether an operating segment must be reported?B. The directors of Perez Industries presumably feel that too much disclosure of financial information will impair the overall utility of the financial statements. What are the arguments against segmental disclosures? What flexibility, if any, does the FASB allow that could invalidate this criticism? Explain.C. Explain the needs for segment reporting. Why do consolidated financial statements fail to meet these needs?D. Relate the concept of comparability to the required accounting treatment for intersegment transactions. What arguments would favor excluding the effect of intersegment transfers?